Google and Visa are both making plans. What investment opportunities does the undervalued x402 protocol hold?
Author: TechFlow If you've been browsing crypto social media lately, you've noticed a strange term popping up frequently: x402. However, related discussions are more prevalent on English-language crypto Twitter, while the Chinese-language community is relatively quiet. This information gap often signals new narratives and opportunities. The story begins with Coinbase. At the end of September, Coinbase announced that it had established a foundation called x402 with Cloudflare. The market reaction was lukewarm at the time, as Coinbase often releases various protocols and tools. If you don’t know Cloudflare, a simple explanation is that this company controls the traffic entrances of more than 20% of the world’s websites and is a core player in Internet infrastructure. It rarely gets involved in the encryption field, let alone jointly develop agreements with encryption companies. In mid-October, Visa also announced its support for the x402 standard. As the world's largest payment network, its choice to support the standard proposed by Coinbase was interpreted by the market as a positive development and a sign of greater mass adoption. From Cloudflare to Visa, from Internet infrastructure to traditional payment networks, the x402 protocol led by Coinbase seems to be connecting the two worlds. This feeling is even stronger when looking at x402's early roster of participants. Tech companies like Google, AWS, and Anthropic (Claude AI's parent company) are among them. Even more notable is the fact that a large number of AI-related projects have begun announcing integrations with x402, including several AI agent platforms. So, what happened is that Coinbase created a payment protocol, traditional payment giants and technology companies joined in, and AI projects began to integrate in large numbers. Is a new narrative brewing in the market? If so, who will be the biggest beneficiaries? HTTP 402: The Internet's Unfulfilled Payment Dream To understand why x402 is important, you must first understand a fact that most people don't know: there has always been a "payment" function in the Internet protocol, but it has never been enabled. When the HTTP/1.1 standard was developed in 1997, engineers defined a variety of status codes to correspond to certain situations or functions that might occur on the Internet. For example, the more familiar 404 is often used to mean "page does not exist"; while 200 means "request successful", but you just can't see it. 402 was defined by early engineers as "Payment Required". However, this 402 error has never been officially used and has remained in reserve. The reason is actually very simple: at that time, the Internet did not have a suitable payment method. Use a credit card? You need a complex merchant system to connect to the Internet; use PayPal? You also need to open a corresponding account system. So the internet at the time took a different path: the advertising model. The rise of companies like Google and Facebook was essentially due to the internet's lack of native payment capabilities. Over the past 30 years, some have tried to activate 402. But each time, they failed due to technical limitations. Until now, as crypto payments have gradually become accepted, the conditions seem to be ripe: First, public chains have native stablecoins, such as USDC, which theoretically make payments as easy as sending an email. Second, L2 is reducing transaction costs. On Base or Polygon, a transaction costs only a few cents. Last but not least, the explosion of AI has led to the emergence of various agents, which may have further created a real demand for using the Internet for payment. For example, if I want my AI assistant to call another AI translation service, which costs $0.01, this transaction would be impossible to complete under the traditional payment system, or it would require mobilizing more resources and opening up more channels. This is where x402 comes in. Coinbase developed a complete payment protocol based on the HTTP 402 standard. Rather than reinventing the wheel, it attempted to fulfill the blank 402 status code. Through the x402 protocol, when AI accesses a paid API, it will receive a 402 status code and a payment request, and then automatically complete the payment with USDC. The entire process does not require human intervention. This may also explain why Cloudflare and Visa are involved. What they see is not the encryption protocol itself, but an opportunity to reconstruct the Internet payment layer. When payment becomes as simple as an HTTP request, the entire Internet business model will also have room to change. The API economy, paid content, and AI services markets are all areas that are expected to explode thanks to the x402. Companies and projects that are first to deploy these technologies will gain a significant first-mover advantage. x402, using encryption to open up payment The x402's technology may sound complex, but its core logic is simple. Understanding its operation reveals the underlying investment opportunities. Let's first look at how a typical x402 transaction is completed. When a user or AI accesses a paid resource, the server returns a 402 status code and tells you: This service requires 0.1 USDC, please pay to this address. After the client sees it, it automatically initiates a USDC transfer. The server confirms receipt of the money and provides the service immediately. How is this different from traditional payment? Traditional payment gateways require you to register an account, link your bank card, and complete various verification procedures. Each transaction goes through multiple stages, including the bank, card schemes, and payment processors, with settlement taking at least T+1. Handling fees typically range from 2-3%, with various hidden fees also added. x402 is completely different. There's no account system, no registration required, and anyone with a wallet, including an AI, can make payments directly. Payments are settled instantly, and recipients receive their funds within seconds (depending on the blockchain used). Most importantly, there are zero protocol-level fees. You may ask: How to make money with zero transaction fees? This is where x402 benefits the crypto ecosystem, or where it benefits Coinbase. The x402 protocol itself is free, but platforms that use it can charge fees. For example, Coinbase, as a payment processor, can charge a small service fee. The Base chain processes transactions and charges a very low gas fee. This model allows the entire ecosystem to profit, rather than being monopolized by a single platform. Cross-chain compatibility is another highlight. x402 is not restricted to any particular chain; Base, Polygon, and Solana are all supported. This means users can choose the cheapest and fastest chain to pay for transactions, depending on the specific chain. In the system envisioned by x402, AIs are no longer just tools, but economic entities with the ability to pay. They can purchase computing power, data, and services from other AIs, forming a new agency economy. In fact, the technical details are not important. What is important is what these features mean: lower costs, faster speeds, and a larger market. When payment friction is close to zero, business models that were originally impossible will become feasible. This may be why not just crypto companies, but also traditional giants like Visa are getting involved. Which targets are worth paying attention to? For us, x402 not only represents a technological update, but also represents a potential investment opportunity. The list of participants in x402 may be the best indicator of the future prospects of this protocol. Let’s first look at the three giants at the infrastructure layer. Coinbase (ticker: COIN) is the initiator and has the most direct motivation. As the largest crypto exchange in the United States, Coinbase has been seeking revenue streams beyond trading. x402 transforms Coinbase from an exchange into a payment infrastructure provider. Every x402 transaction can potentially flow through the Base Chain, and every USDC payment strengthens its ecosystem position. If x402 becomes truly popular, Coinbase will become the Visa of crypto payments. Cloudflare (stock code: NET) also has its own considerations for joining. This company controls 20% of global web traffic, yet has little exposure to finance. Why is it going under now? The answer may lie in AI. Cloudflare recently launched its Workers AI platform. If websites can charge AI directly through x402, Cloudflare will control a huge AI service market. Visa (ticker: V) is more of an offensive and defensive business strategy. The defensive goal is to prevent its own payment network from being marginalized by crypto payments, while the offensive goal is to seize the initiative in AI payments. Visa itself has previously launched a protocol called TAP, which is currently interoperable with x402. Specifically, TAP (Trusted Agent Protocol) is a payment protocol designed specifically for AI agents. In the future, AI agents will be able to use both the traditional Visa network and crypto payments. For example, an AI assistant could use your credit card to buy a plane ticket, and then use USDC to pay for services from another AI agent. Looking at encryption projects, this is where the investment opportunities are most concentrated. @AEON_Community AEON Launched AI Payment infrastructure, enabling AI agents to autonomously search, shop, and pay using cryptocurrencies. It collaborates with major blockchains such as BNB Chain, Solana, TON, and TRON, and won the BNB Chain Demo Day championship. @PayAINetwork PayAI Network We have built a global, always-on marketplace for AI agents to hire and work with each other, built on open source technologies such as libp2p, IPFS, ElizaOS, and Solana. Recently, two ElizaOS agents completed the first fully autonomous contract negotiation, signing, delivery, and payment in history. After the project supports x402, AI agents can be charged on demand, truly realizing commercialization. @daydreamsagents Daydreams An AI framework with composable context, a platform designed for executing tasks on-chain, allowing AI services to be transacted via micropayments. @GoKiteAI KITE AI We are building the infrastructure for the Internet of Agents, a system that enables autonomous agents to independently authenticate, transact, and operate in a real-world environment. In September of this year, KITE raised $18 million in Series A funding, co-led by General Catalyst and PayPal Ventures. Their AIR (Agent Identity Resolution) system provides AI agents with verifiable identities and programmable payment channels. @questflow Questflow It serves as the orchestration layer for a multi-agent economy, coordinating a global network of AI agents to autonomously execute tasks and earn on-chain rewards. After integrating with the CDP wallet and x402, Questflow has processed over 130,000 autonomous microtransactions and integrated over 30 third-party agents. They partnered with Circle to use USDC as the core settlement currency. @peaq Peaq Peaq announced support for the x402 protocol, enabling builders on its blockchain to leverage x402 for machine-to-machine (M2M) and agent-to-agent (A2A) payments. As a layer-1 blockchain designed specifically for DePIN (Decentralized Physical Infrastructure Network), Peaq has already connected over 850,000 machines, robots, and devices, making it a frequent topic of conversation in the Robots x Crypto narrative. Some projects, while not yet issuing tokens, are worth keeping a close eye on. For example, Firecrawl, an API for scraping web data, plans to charge a per-use fee using x402. Pinata, the largest IPFS service provider, plans to enable x402 payments for its storage services. Once these projects issue tokens, they are likely to become new hot topics for the x402 concept. Due to space limitations, not all potentially beneficial projects are listed here. You can click here to view the complete list of projects by another well-known science blogger @eli5_defi. Overall, if one wants to bet on this narrative, there are at least three clear investment themes that can be seen from the participants of the protocol: First, the infrastructure beneficiaries, with Coinbase bearing the brunt. Second, the AI agent track, especially the projects that have been announced to be integrated. Third, the Base ecosystem has become the main battlefield for x402. Finally, for investors following this narrative, you need to know that x402 is not the only solution. Lightning Network's L402 protocol is also attempting to activate HTTP 402, but based on Bitcoin rather than stablecoins. Google's AP2 protocol, while supporting x402, is also developing its own payment standard. x402 could face stiff competition if big tech companies decide to launch their own payment protocols. However, 402 has two key advantages: first mover advantage and ecosystem. The combination of Coinbase, Cloudflare, and Visa, coupled with the early adoption of dozens of AI projects, has already created a preliminary network effect. For investors, the x402 concept offers a clear narrative theme: payment infrastructure in the AI era. Whether betting on infrastructure (Coinbase, Base ecology) or the application layer (various AI agent projects), the core logic is the same: betting on the imagination space of the new AI economy. If you believe AI agents are the future, then their payment needs are a necessity, and x402 may be the best encryption solution to meet these needs.
